Gold And Mining Stocks: The Outlook Remains Bearish

By: Przemyslaw Radomski | Tue, Oct 1, 2013
Print Email

We summarized our previous free commentary by stating that the medium-term outlook was bearish - did anything change?

After three quarters of declines prompted by fears over U.S. stimulus tapering, gold posted a near 8% gain for the September quarter. Yesterday, the yellow metal gained on safe-haven bids surrounding the U.S. government shutdown. However, this improvement didn't last long and gold declined as buying slowed. What's interesting, we saw this downward move despite a weaker dollar.

Earlier today, we saw further growth as the U.S. government shut down some of its operations after Congress failed to agree on a spending bill, but gains were limited as investors believe the stand-off will likely soon be resolved. It's worth noting that it's the first U.S. government shutdown in 17 years. According to Reuters, the impasse also raised concerns over whether Congress can meet a more important deadline in mid-October to raise the debt-ceiling limit. At this point it's worth mentioning that the debt ceiling issue came up in 2011. Back then, an agreement was reached only in the last minute and gold hit an all-time high of $1,920 an ounce, in part because of the uncertainties surrounding a deal.

If the political wrangling continues, will it be the impetus for gold to move higher? Will the yellow metal to break out above the $1,350 level? Or maybe we'll see a confirmation of the breakdown below $1,300? Before we try to answer these questions, let's move on to the very long-term HUI index chart (a proxy for the gold stocks) and try to find out what kind of impact the mining stocks can have on gold's future price (charts courtesy of http://stockcharts.com).

$HUI Chart
Larger Image

As you see on the above chart, in the past weeks and months, there were several unsuccessful attempts to move above the 61.8% Fibonacci retracement level based on the entire bull market. The last attempt we saw in mid-September also failed, just like the previous ones. In this way, mining stocks returned to below the above-mentioned retracement level (at approximately 267), and still remain below it.

From today's point of view, we clearly see that the situation hasn't changed. From the long-term perspective , the implications are therefore bearish and the trend remains down.

Now, let's move on to the junior sector.

In the Toronto Stock Exchange Venture Index (which is a proxy for the junior miners as so many of them are included in it), we see that after several weeks of sideways trading, juniors moved to the declining resistance line based on the March 2011, March 2012 and January 2013 highs. It's worth mentioning that in the past when we saw analogous price moves, they all resulted in major declines.

If we see similar price action here, it will probably lead to a continuation of the downward move - and this seems very likely.

Before we summarize, we think it would be interesting to revisit the chart of gold priced in Australian dollars. May it provide important clues about further price movements? Let's find out.

$GOLD:$XAD Chart
Larger Image

On the above chart, we see that there was a significant breakout above the long-term declining resistance/support line in mid-August, which resulted in a rally to slightly below the February high. In spite of this upside move, the improvement didn't last long, and we saw a sharp decline at the end of August and into September. With this move, gold priced in Australian dollars dropped below the broken resistance/support line once again, invalidating the breakout above this line.

As you see on the above chart, there is a bearish head and shoulders formation underway, which may result in further declines in the near future. In this case, we could see a strong corrective move, one which would likely push gold's price all the way back down to the April bottom area. Actually, we could even see a move below the April lows, because gold seen from this perspective is no longer strong versus gold priced in the US dollar.

Therefore, from this point of view, the implications are bearish.

Summing up, the medium-term outlook for gold remains bearish despite the positive fundamental situation (based on which gold will likely move higher in the coming years) . Despite last week's show of strength, the downward trend is not threatened at the moment. Additionally, the outlook for the mining stocks also remains bearish, and the trend is still down.

To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

 


 

Przemyslaw Radomski

Author: Przemyslaw Radomski

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Gold & Silver Investment & Trading Website - SunshineProfits.com

Przemyslaw Radomski

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same.

His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem that may never be solved, PR has changed the world of trading and investing by enabling individuals to get easy access to the level of analysis that was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals sector. For that reason it is his main point of interest to help you make the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for professional excellence and ethics for the ultimate benefit of society.

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer: All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Copyright © 2009-2017 Przemyslaw Radomski, CFA

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com